Yen Tumbles Most in 17 Months as BOJ Doubles Stimulus

Expectations for expanded monetary easing under the Bank of Japan’s new leadership have driven the yen down 11 percent this year, the biggest loser among 10 developed nation currencies tracked by Bloomberg Correlation Weighted Indexes. Photographer: Yuriko Nakao/Bloomberg

April 4 (Bloomberg) -- The yen tumbled the most in 17
months against the dollar after the Bank of Japan outstripped
forecasts and announced unprecedented economic stimulus measures
that tend to devalue the currency.

The euro rose versus the dollar after the European Central
Bank held interest rates steady and ECB President Mario Draghi
said policy makers are “ready to act” if the region’s economy
declines further. The pound gained as the Bank of England
refrained from boosting asset purchases. The yen slid at least
2.9 percent versus all of its 16 most-traded peers as BOJ
Governor Haruhiko Kuroda doubled monthly bond buying.

“Expectations were high, and Kuroda managed to meet and
beat them in every sort of dimension,” Richard Franulovich, a
senior currency strategist at Westpac Banking Corp. in New York,
said in a telephone interview. “It’s a pretty radical step.
It’s flooding the system with liquidity and excess reserves,
which is a negative for the currency.”

The yen tumbled 3.4 percent to 96.33 per dollar at 5 p.m.
in New York and touched 96.41 in the biggest one-day drop since
Oct. 31, 2011, when Japan intervened in foreign-exchange markets
to weaken its currency. The yen slumped 4.3 percent to 124.62
per euro and touched 124.64, the weakest level since March 15.
The shared currency gained 0.7 percent to $1.2936 after sliding
0.8 percent earlier to $1.2746, the lowest since Nov. 21.

The Japanese currency fell to the weakest level against
Australia’s dollar since August 2008, sinking as much as 3.3
percent to 100.59 yen. The Aussie fell 0.2 percent against the
greenback to $1.0437.

Ruble Weakens

The Russian ruble breached the level at which the central
bank may intervene to curb losses amid a drop in oil, the
country’s main export earner. The currency reached 35.7542
against Bank Rossii’s dollar-euro basket. Market participants
say the bank may move to curb excessive currency declines at a
level beyond 35.65 rubles. The currency declined 0.1 percent to
31.6348 to the dollar in its fourth day of losses.

Hungary’s forint rallied versus all of its 31 most-traded
peers after the country’s central bank unveiled measures to
boost lending and economic growth. While the Magyar Nemzeti Bank
will use as much as 3 billion euros ($3.8 billion) of its
foreign reserves, the level of reserves will stay within safe
limits, bank President Gyorgy Matolcsy told reporters.

The forint climbed 1.2 percent to 232.91 per dollar and
touched 232.02, the strongest level since March 12.

BOJ Purchases

Japan’s central bank said it will buy 7 trillion yen ($73
billion) of bonds a month to fight deflation, exceeding the 5.2
trillion yen estimated by economists surveyed by Bloomberg News.
BOJ officials at the two-day meeting, the first to be led by
Kuroda since he took office last month, also temporarily
suspended a cap on some bond holdings and dropped a limit on
debt maturities. They set a two-year horizon for their goal of 2
percent inflation.

Bets on monetary easing under the BOJ’s new leadership
drove the yen down 18 percent in the past six months, the worst
performer of 10 developed-nation currencies tracked by Bloomberg
Correlation Weighted Indexes. The dollar rose 2.3 percent and
the euro gained 1.3 percent.

“They essentially pulled out all the different options in
one go,” Jens Nordvig, global head of currency strategy in New
York at Nomura Securities International, said in an interview on
Bloomberg Television’s “Lunch Money” with Julie Hyman. “And I
think personally it’s the right thing to do. You want to really
say we’re serious about this inflation target, we’re going to do
all it takes, and that’s what they did.”

ECB Rate

The euro initially dropped to a four-month low against the
dollar after the ECB left its benchmark interest rate at a
record-low 0.75 percent. Draghi said risks to the economic
outlook remain on the downside and inflation is “edging down
well below” the ECB’s 2 percent target.

Draghi stressed the ECB’s “determination to fight” any
speculation of a euro break-up after Cyprus last month became
the fifth euro-area nation to secure a bailout.

The currency erased losses and later strengthened amid bets
it had fallen too much, too fast.

“The initial reaction was to the weaker economic
assessment and the easing bias,” BNP’s Serebriakov said. “He
reemphasized and stressed the effectiveness and importance of
the ECB’s backstop.”

The euro fell earlier after Markit Economics said its index
of services output in the region declined to 46.4 in March from
47.9 in February. That’s below an initial estimate of 46.5
published March 21. A reading below 50 shows contraction.

U.S. Jobs

The dollar headed for its first weekly loss versus the euro
since March 15 before a government report tomorrow that a
Bloomberg survey forecast will show U.S. employers added 190,000
jobs last month, following a gain of 236,000 in February.

Sterling rose against the dollar for a second day as the
Bank of England kept its asset-purchase target at 375 billion
pounds ($567 billion) in a decision that was forecast by 34 of
37 economists in another Bloomberg survey.

The pound was also boosted after an industry report showed
Britain’s services output unexpectedly accelerated in March.